Choosing the right Life insurance policy



Posted on: 26th April 2018

Why do people choose to take out life insurance/ assurance policies? Well, most people do it for one of two reasons: protection or reassurance, though many people chose a policy which covers both.  A life insurance policy can pay off any large debt, like a mortgage, if you were to die unexpectedly; moreover, a life insurance policy can help to protect your family, leaving them secure and comfortable in your absence.

Guiding you to the Best Life Insurance Policy

Before you decide which type of life insurance policy is best suited to your circumstances, we would always recommend that you seek professional advice. Haven IFA can offer guidance and support so that you can be assured you have chosen the most suitable life insurance policy for you and your family.

Term Assurance

The most basic type of life insurance policy is called term assurance. You choose both the sum you would like to be insured for and the period you would like to be covered for. If you pass away within the term, the policy will pay out to you and your beneficiaries. If you do not die within the defines period, however, the policy will not pay out and any premiums you have paid will not be returned to you.

There are two types of term assurance you can choose from – level term and decreasing term insurance. In some cases, the best option is to have a combination of both types.

Level-term life insurance policy

A level-term life insurance policy will pay out a lump sum if you die within a specified time-period. The amount you are covered for remains the same level throughout the term – as the name implies. Your monthly or annual premiums will usually stay the same as well.

Level-term policies can be a suitable option for family protection, as the policy will pay out a lump sum to your family if you die within the period. A level-term insurance policy can also be a good choice if you need a specified amount of cover for a specified length of time; for example, a policy covering an interest-only mortgage not covered by a separate endowment policy.

Decreasing-term life insurance policy

With a decreasing-term life insurance policy, the amount of cover will decrease over the course of the policy being in place. Decreasing-term life insurance policies are mainly chosen by people who need to cover a debt, like a repayment mortgage, that will be reduce over time.

The premiums for this type of life insurance policy are significantly cheaper than level-term cover premiums as the amount that is insured reduces over time. It is also worth noting that a decreasing term life insurance policy can also be used for inheritance tax planning purposes.

Family income benefits

Family income benefit life insurance is another variation on a decreasing-term life insurance policy. Instead of a paying out a lump sum; it pays out a regular income to the beneficiaries on the policy holder’s death until the expiration of the policy.

The principal advantage of choosing a family income benefit life insurance policy is that it makes calculating the needs of your family simpler and much easier. For example, if you are currently bringing in an income of £2,000 each month, you can arrange for the same amount to be paid to your family should you pass away.

However, family life income benefit life insurance also has a disadvantage. If you were to die within two years of a twenty-year family income benefit policy, your family would receive £2,000 a month for eighteen years; however, if you were to die a year before the policy ends, your family will only receive that monthly payment for one year.

Whole-of-life Policies

As the name suggests, a whole-of-life policy is an ongoing life insurance policy that pays out whenever you die. As the pay-out is guaranteed because of the nature of the policy, these policies are more expensive than term assurance, which only pay out for a specified time. the which only pays out if you pass away within a certain timeframe. However, a useful advantage of a whole-of-life policy is that can be used to cover a future inheritance tax bill.

So, what is the right life insurance policy for you?

Everyone’s life insurance policy needs are different. Life insurance policies should be tailored to an individual’s circumstances and needs. That’s why it always pays to get expert independent advice before committing to any policy. Talking to an independent financial advisor like Haven IFA can give you a clearer idea of which life insurance policy would best suit you and secure your family’s future. To find out more about your options, contact Haven IFA today.